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ties, and literally dozens of other variables that are inherent in the study of a fee schedule. I submit, sir, that this forum, fair and thoughtful as it is, is not equipped to deal with this mountainous task. It is just too much; it demands too much of busy Senators who have other duties.
That is why the arbitration tribunal was agreed upon in the first place in the consensus agreement. That is why it is indispensable, at the very outset, to set the standards, the procedures, and the painstaking attention to detail that this kind of fee setting deserves.
Now I also believe, and my colleagues believe that the arbitration tribunal is fair because it is beholden to neither side. I would not for one moment tell you that both NCTA and our groups are totally objective; of course we're not; we each have an ax to grind. Therefore, while I do believe the Senate is objective, I am saying that the Senate does not have the time nor the House to deal with this. Therefore, I would like to go to an objective body with the time to consider the detail.
When one looks at this bill, Mr. Chairman, they say, my goodness, at first blush, the large systems are going to pay a royalty fee or copyright fee of 5 percent. That is not true. This is a progressive rate schedule from i to 5 percent based on different levels of income in which the 1, 2, 3, 4, and 5 percent apply to these different levels.
That means, Mr. Chairman, overall this fee schedule yields an effective rate of 1.9 percent, and from this modest sum all-repeat allcopyright owners, film producers, broadcasters, music composers, all must share in that modest sum.
To put these figures in the proper perspective, let's see what they mean. The FCC published some data which is very pertinent. They pointed out in the year 1971, the individual television stations in this Nation paid $179 million in the year 1971 for the licensing of nonnetwork copyrighted material, $179 million. Now, if the fee schedule in S. 1361 had been in effect, in that same year cable systems would have paid for that same material $7.6 million.
Now by whatever standards or what measures you choose to lay down, we think that is grossly inadequate in a return.
Now the cable systems are economically viable and able to pay larger fees, surely larger than is in S. 1361, beyond any doubt as far
as we are concerned. We have gone to the expense of commissioning a study by two distinguished economists, Mr. Fray of Temple, Barker and Sloane, Inc., and Dr. Crandall, associate professor of economics at MIT, to study, to find out the capability of cable systems today to pay fees tomorrow. I think this study graphically illuminates the fact that cable systems, even after deducting the 15 percent return on investment which any bank would be pleased to loan money on, I am sure, even on the deduction of the 15 percent royalty, there are considerable funds available to pay a higher fee, much higher than S. 1361.
Now, I don't have time, Mr. Chairman-
I am hopeful, Mr. Chairman, because, if I may say a word within the timeframe that I have, I am not sure-I do not have time to discuss this; I am hopeful that you might see fit, sir, to ask some questions, pertinent questions about this study to bring out the source data and how it was developed and what it means.
Senator McCLELLAN. Well, I have not seen this study, and I did not have the opportunity to review it, but I am saying
Mr. VALENTI. I cannot argue with you on that point.
Senator McCLELLAN. I'm saying to you, and all of you, I do not necessarily mean for this to be final, but in order to get the thing in motion again, we set these days, to give everybody a chance to present their views and as you know, of course, you have the right to submit rebuttal statements and whatever you want to. We are going to try to make a complete record.
But as you indicate, this seems to be a very, very complicated—and in fact, we know it is complicated-and we want again to bring the record up to date. That is what we are trying to do.
Now, if we did not limit it, limit the time to some extent, it would go on here for months and months. I am sure, when we get this record, we will try to have it reviewed and we may fill in some gaps, of course, if we need to.
Have you finished !
Senator McCLELLAN. Go ahead. I will ask you a question or two after you have finished.
Mr. VALENTI. I was just going to say, we do not have time to present the study, but as you point out, it is in the record there, and I hope the committee will have a chance to examine it, and we might have a chance to expand on it some other time.
But, let me make a few concluding remarks.
One is that the overwhelming argument in favor of an arbitration tribunal is simply this, Mr. Chairman. You ask two questions: is it right and fair that a fee schedule should be set after an examination has been made of all the evidence, all the facts have been weighed in, all the variables have been tested and scrutinized; or is it right and fair that a fee schedule should be set artificially unaccompanied by facts or data whose numbers and arithmetic were plucked out of the air with no claims to study or to any factfinding procedure? ?
Well, the answer to those questions is quite obvious; that is why it makes good sense. And I wish I had more time, as I say, to discuss it.
I will make my final comment.
When this bill was first introduced by Senator McClellan, the Senator indicated that the cable television provisions in the bill would have to be reexamined in the light of evidence since December 1969.
I would like to respectfully submit to you, sir, that we have some suggestions for changes which the copyright owners consider essential, and there are four or five and I will go quickly through them.
The first is that the grant of compulsory license to cable systems with appropriate limitations on its scope be made. In our detailed statement to the committee, we have told you what we mean by this. The consensus agreement provides, Mr. Chairman, that the compulsory license shall be limited to "those distant signals defined and authorized under the FCC's initial package,” of course with the local and grandfathered signals additionally. The retransmission by a cable system of distant signals beyond the compulsory license should be subject to full copyright protection. Further, as provided for in the con
sensus agreement, the FCC would not be able to limit the scope of exclusivity agreements as applied to such signals beyond the limits applicable to over-the-air showings.”
That is suggestion No. 1.
Suggestion 2 is a very important one, sir. We believe that the basis for the computation of fees should be spelled out. The statute should provide that in readjusting the fees, the tribunal should have broad powers to set and adjust the fees both with respect to the manner and method with which it is to be computed and the base on which the fees are to be assessed.
The third point, the language in the bill should be changed to provide that the arbitration tribunal shall make determinations concerning the adjustment of the copyright royalty fees as spelled out by section 111 so as to assure that such fees are just and reasonable. What this section says now is that such fees shall continue to be reasonable.
Well, if we're going to have S. 1361 as it is, then this must be that the fees must be adjusted reasonably, not to continue, because at this point we do not believe that they are reasonable.
No. 4, we need a clearer definition of what is a cable system; and 5, we need a reexamination of the overly broad governmental and nonprofit organization exemption.
Now, Mr. Chairman, I have taken about 16 minutes; and I would like to, in the remaining 4 minutes that is on our allotted time, I would like to have speak to you briefly a gentleman who represents the Screen Actors Guild, Mr. Chet Migden, who is executive secretary of the Screen Actors Guild. He also represents the I.A., which is the craft unions; and we are speaking for them in California and throughout the continental United States, and unofficially representing the Writers and Actors Guild. In short he represents the labor and technician and craftsmen community in the film industry in the United States. And I would like to have Mr. Migden, Chet Migden of the Screen Actors Guild.
Senator MCCLELLAN. Very well. We will be glad to hear him, but I would ask you two or three questions.
Mr. VALENTI. Yes, sir.
Senator McCLELLAN. Have you submitted in your document here a schedule of fees that you think proper?
Mr. VALENTI. No, sir. We have not. Senator McCLELLAN. Do you wish to submit to the committee a schedule of fees that you think proper?
Mr. VALENTI. Mr. Chairman, to be
Senator MCCLELLAN. Somebody is going to have to look at some proposals, whether we do it or arbitrators or somebody else.
Mr. VALENTI. Mr. Chairman, may I tell you very honestly the reason why we did not. This has been examined, and I must say I looked on it with some favor; but to be perfectly honest, we determined not to submit a specific fee schedule because of the result of our negotiations with Cable Systems. That schedule that we would submit to you then would become the floor or the ceiling, whichever one you choose to call it, from which new negotiations would begin.
We would be willing to submit a schedule of fees if Cable Systems would also submit their schedule of fees. They have not moved one jot off the 1.9 effectiye rate. We have made several attempts at compromise, and it has not gone forward.
We are just afraid, to be honest and not try to beat around the bush, if we submitted a schedule that would become basis for new negotiation, and we would constantly be pushed down. And there is no other reason, sir, why we have not.
Senator MCCLELLAN. It looks to me like somewhere, sometime each side is going to have to submit a proposal, either here or at the arbitrators. I do not see any way to avoid it, do you?
Mr. VALENTI. Excuse me, sir.
Senator McCLELLAN. Do you see any way ultimately to resolve it, unless the proposals of the conflicting parties of interest be submitted somewhere for evaluating.
Mr. VALENTI. Yes, sir. I think with an arbitration panel, we would be obligated to submit what we think is a fee we ought to have, or at least to bring before the arbitration tribunal all the evidence showing expected loss of our programs, fractionalization of our audience, and how the values of our programs have decreased. And by submitting this long dossier of facts and figures, we might come forward with a fee schedule.
Senator MCCLELLAN. I agree with you that this is a very complicated thing. I do not know all the answers. I do not know anyone who does know immediately; but this has been a pending matter for quite a long time, and I assume, or am certain that the parties of interest would be able to give us some suggestions from their standpoint, something concrete for us to look at.
Mr. VALENTI. Mr. Chairman, I could not agree with you more, but the realisms of the negotiating jungle tell us that we would be making a grave strategic error, because just as surely as night follows day, that fee schedule would become the basis for new negotiations; that would become the ceiling; and we would be pushed down and down and down.
And I feel like frankly, to be honest again, that we have made sereral attempts at compromising. I think that your staff and others have been aware of that each time we have not gotten anywhere, and indeed, it has ended our position without any attempt to gloss over it. As a matter of strategy, we felt like this would be wrong for us to do that.
Senator McCLELLAN. It seems to me if both sides take the position that they do not want to submit anything for our consideration, for us to evaluate, it seems to me that we are going to be left here, if we do undertake to fix fees, just take something out of the air that appeals to us.
And I do not think after we do that, if we are not given the assistance, cooperation from those who are suggesting relief they want, if they do not give us something concrete to base it on, I do not think you have much justification for complaint.
Mr. VALENTI. Mr. Chairman, responding to that, of course our contention has been that we have already submitted a proposal, and indeed, a proposal that was agreed upon at an earlier time by the cable systems; and that is, the insertion of the arbitration tribunal at the outset. That is really what the controversy has been about.
Senator McCLELLAN. Well, that is one issue, and I am not excluding that issue. I am going to point out though that if the committee does undertake-I am not saying they will—but if they should undertake to establish fees, or temporary fees until arbitrators or some board, you will.
proper tribunal, could make a thorough investigation about what you suggest—until then, it would be well if we had some suggestions and reasonable basis for us to evaluate it.
I am not at the moment I am not insisting that you do it. I am leaving it largely up to you.
Mr. VALENTI. All right, Mr. Chairman.
Senator McCLELLAN. One other thing, Jack. Maybe you can be helpful on this.
Mr. VALENTI. Yes, sir.
Senator McCLELLAN. We have a problem in this connection, and I think maybe you should comment on it if you have not. I do not believe I heard you. You may have in your formal statement.
We have a request, only a request—it is kind of an urgent appeal, let's put it that way-from small cable TV systems that they be exempt, some of them. I had a wire this morning from Louisiana.
But they are requesting-I suppose you know that—that systems with 3,500 subscribers, and anything less than 3,500 subscribers, be exempt.
We of the committee have not as yet looked with favor on that. Some of them make a pretty strong appeal from the standpoint they just cannot afford it. I would like for you to comment on that, if
Mr. VALENTI. Yes. I would be pleased to, Mr. Chairman. A short historical background-in the give and take of hammering out a consensus agreement, one of the concessions that the copyright owners were pleased to make in order to have an arbitration tribunal at the outset, in return for that, one of the returns for that, we were willing to exempt from all copyright liability, assuming the arbitration tribunal went in at the outset, copyright fees from markets, from cable systems independently owned with less than 3,500 subscribers; independently owned, what we call the mom-and-pop type station.
Senator McCLELLAN. And so there would be no objection on your part, as I understand it.
Mr. VALENTI. Assuming that the arbitrational tribunal
Senator McCLELLAN. In other words, if you get your point on the other issues, you would waive that; otherwise, you do not.
Mr. VALENTI. Yes, sir. That is essentially correct, Mr. Chairman. That was part of the construction that was built into the consensus agreement,
Senator McCLELLAN. I know. I have been getting some wires and communications lately from the smaller systems, 3,500 and under; and I think you should speak to the point.
Mr. VALENTI. Yes, sir. Did I respond to you all right, sir?
Senator McCLELLAN. Yes. But I thought you should be given the opportunity to comment on it. All right. Who is your next witness? Mr. VALENTI. This is Mr. Chet Migden again. Senator McCLELLAN. Mr. Midgen, all right, sir.
Mr. MIGDEN. Mr. Chairman, I wish to thank the committee for according me this opportunity, and I will try to be brief, to appear before you. And I would like to thank Mr. Valenti for giving me a portion of his time to do this.